Abstract:
We investigate the degree to which the wheat markets of France, Germany and the United Kingdom are in spatial equilibrium and how
reforms to the CAP affect the speed of convergence to the long-run relationship. Due to the interrelationship among these markets and
the nonstationarity of our data we introduce a seemingly unrelated regression augmented Dickey-Fuller and error correction methodology.
We argue this methodology is more efficient than ordinary cointegration and error correction models. Empirically we find strong
evidence of efficient spatial markets and conformity to the law of one price. Market liberalization reforms in the EU increased the
comovement of domestic and world wheat prices; our post-Uruguay Round price transmission elasticity was 0.183.